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Court Dismisses Public Pension Fund's Bankruptcy Case

In our May 24 entry on this topic, the Northern Mariana Islands Retirement Fund (the “Fund”) was battling numerous challenges to its Chapter 11 eligibility. The dispute revolved around whether the Fund, which provides benefits to government workers and retirees, was a “governmental unit” as defined by the Bankruptcy Code. In a decision from the bench on June 1st, U.S. Bankruptcy Court Judge Robert Faris affirmed his May 29th tentative ruling that the Fund is a “governmental unit” and, as such, is ineligible for Chapter 11.

While a full memorandum opinion granting the motion to dismiss is forthcoming, Judge Faris’s tentative ruling provides useful insight. In the tentative ruling, the Judge explained that “Congress did not intend that the Bankruptcy Code could solve all problems, least of all the financial problems of governmental units[,]” as the Bankruptcy Code explicitly prohibits a “governmental unit” from filing Chapter 11. The issue turned on the factors highlighted in our previous entry, those which focused on the formation and function of the Fund. Ultimately, the Court found three factors persuasive: (i) the Commonwealth of the Northern Mariana Islands (the “Commonwealth”) formed the Fund as a means of carrying out the government’s obligations to its current and retired employees; (ii) the Commonwealth retains significant influence over the Fund; and (iii) providing compensation and benefits to government employees (andonly government employees) is a quintessential governmental function. The Judge concluded that because the Fund acts solely as an intermediary between the government and its employees and retirees, with no private employer or nongovernmental employees involved, the Fund is a “governmental unit.”

Tentative Ruling on Motion to Dismiss.pdf

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About this Author

William W. Kannel, Bankruptcy Attorney, Mintz Levin Law Firm
Member

Bill’s practice focuses primarily on commercial law, workouts, and corporate reorganization. He has represented various institutional lenders, indenture trustees, bondholders, and other creditors, debtors, and trustees in all manner of insolvency proceedings in courts throughout the United States.

His industry experience encompasses municipalities, airlines, hospitals and other health care facilities, retail, telecom, energy and clean tech, waste disposal, military housing, hotels, and educational institutions.

He has substantial experience in all phases of bankruptcy...

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Eric Blythe, Bankruptcy, Restructuring, Commercial Law Group, Mintz Levin
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Prior to joining the firm, Eric served as legal counsel at the Massachusetts State House. While there, he worked for the state representative for Marshfield and Scituate, and he researched and reported on issues such as affordable housing, end-of-life health care, court-appointed attorney regulations, the tax-expenditure budget and pension reform. He also drafted legislation regarding issues ranging from freedom of speech rights to nuclear power plant regulation. He was a Summer Associate at Mintz Levin in 2009.

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